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Moody's Sovereign Risk Report Summary (24 October 2016)

Core Content

This report from Moody's Analytics provides an analysis of sovereign credit risk across various countries, with a focus on Saudi Arabia and other emerging and developed market entities. It outlines the changes in market-based credit risk metrics such as Sovereign EDF (Expected Default Frequency), CDS Implied-Rating, Bond Implied-Rating, and Senior Rating over specific periods.

Main Points

• Saudi Arabia:

  • The country's five-year Sovereign EDF improved significantly, decreasing from 0.69% on January 18 to 0.38% as of October 21, 2016.
  • This improvement was attributed to a $17.5 billion bond sale, the largest ever from an emerging-market nation.
  • The bond offering was part of a broader strategy to address a record $98 billion budget deficit in 2015, which represented about 15% of GDP.
  • The government also implemented spending cuts and efforts to boost non-oil revenues, such as reducing subsidies.
  • Despite these efforts, the IMF revised its non-oil growth projection for Saudi Arabia from 1.6% in May to 0.3% in October, indicating ongoing economic challenges.
  • The report suggests that further adjustments are needed to balance the budget within five years.

• Middle East & Africa:

  • Among non-OPEC countries in the region, only Lebanon and Kazakhstan showed modest increases in sovereign credit risk over the past week.
  • Lebanon experienced a rise in its five-year Sovereign EDF from 1.69% to 1.73%, driven by political instability and a refugee crisis.
  • Kazakhstan saw a slight increase in its Sovereign EDF from 0.62% to 0.63%, which could signal potential future trends.
  • Other countries in the region, such as Qatar, South Africa, Israel, and Turkey, showed a decline in sovereign credit risk.

Key Information

• Sovereign EDF is a measure of the expected probability of default over a five-year horizon.
• CDS Implied-Rating reflects the market's assessment of credit risk through credit default swap (CDS) pricing.
• Bond Implied-Rating is derived from the bond market's pricing and reflects market expectations of credit risk.
• Senior Rating is the highest rating provided by Moody's Investors Service and reflects the fundamental creditworthiness of a country.
• The report highlights that market signals are used to evaluate the risks and investment opportunities associated with sovereign entities, complementing fundamental analysis.

Summary Table Highlights

Additional Notes

• The report emphasizes the importance of market signals in evaluating sovereign credit risk.
• Moody's Analytics and Moody's Capital Markets Research are separate entities from Moody's Investors Service.
• The report does not provide investment advisory services but offers market-based credit risk analysis.
• The analysis includes data from CreditEdge, highlighting the relationship between sovereign credit risk and crude oil prices.